This medical technique forms one's chakra into a small, sharp blade. This can then be used for highly accurate incisions necessary for surgeries and anatomical dissections. Unlike regular scalpels, the chakra scalpel can actually make cuts inside the body without actually creating an open wound, limiting the risks of an infection.

The chakra scalpel can also be used offensively, although it requires great precision to be effective. Because of this requirement, using the chakra scalpel offensively is highly unusual. In heated combat, even the greatest medical-nin won't be able to exert the precision needed to make fatal cuts, but it can still effectively cut muscle tissues and tendons, rendering the target immobile.

Adding to the technique's blade like quality, it also appears to give the user an increased level of durability over their chakra clad hands. Using this, Kabuto was was able to clash with Sasuke's Sword of Kusanagi while in the hands of Itachi.

In Part II though, Kabuto's skill with this technique was enough to cut through wood and flesh with ease.[1]

Trivia

Although it is usually written in katakana, the "mesu" (メス, scalpel) part of the name was given kanji when it was first introduced. It was written as チャクラ解剖刀 (Literally meaning "Chakra Dissection Blade"), which would usually be pronounced as "Chakura Kaibōtō".